SMALL and medium enterprises (SMEs) are worried that the recently-introduced government measures meant to formalise the informal sector may choke them out of business.As the Zimbabwean economy shrank over the years, the informal sector grew to contribute an estimated 70% of economic activity.
However, this growth has not translated to significant fiscal revenue forcing the government to introduce measures to tap into the sector.The latest round of measures includes a requirement for enterprises with US$25 000 yearly income to register for value-added tax (VAT) and restrictions on formal companies from doing business with informal traders without VAT licences.
Speaking at the Unpacking the Finance Act seminar held last Friday hosted by the Women Affairs, Community, Small and Medium Enterprises Development ministry, Small and Medium Enterprises Association of Zimbabwe executive director, Farai Mutambanengwe bemoaned the tax regime saying it criminalised most of the informal sector and was likely to cause non-compliance.
“It looks like this tax regime is criminalising most of the informal sector. It’s not the issue of us not wanting to pay but the tax regime is quite radical. The thing is if you look at the people selling on the streets, how are they going to pay those taxes? The city council will only have a lot of people to run after. This system will push the SMEs into non-compliance,” Mutambanengwe said.
“The policies that you are also implementing, are continuously increasing the number of taxations and they are going to continuously facilitate the shunning of tax payment. We, as MSMEs, are trying to grow but these taxes are choking businesses. We are going to sink rather than grow to develop the economy. The tax regime was supposed to be gradually implemented to avoid choking the sector.”
The event saw the ministry inviting several leading SME organisations, which mostly voiced their disdain of the new taxes.Zimbabwe Chamber of SMEs chairperson, Daniel Chinyemba said the tax regime needed to be simplified and implemented gradually to reduce the chances of non-compliance.“The approach of the tax system should be gradual. The taxation system should be simplified so that they can understand. The taxes are quite complicated, and we need to understand where they are coming from,” he said.
“As SMEs, we are just trying to make a living and we try to formalise our businesses as well. We want to comply, but we feel that some of these taxes are unreasonable. Some of these entrepreneurs do not even know the benefits of being formal. They need to be educated.”A recent central bank 2022 study found that the informal sector is estimated to generate an annual turnover of US$14,2 billion.
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